Gold vs Silver

By Kurt Brouwer

When comparing gold to silver in terms of value, one good tool is the gold – silver ratio, which compares the price of an ounce of gold to an ounce of silver. There have been wide swings in the ratio over the past 10 years, with the ratio of gold getting as high as 80 times an ounce of silver with a low approaching 40 times as this charts demonstrates:

If you divide the current price of gold ($1,385) by the price of silver ($29), you get the gold – silver ratio of nearly 48. It works pretty well to measure the relative priciness of an ounce of silver compared to gold.

The lower horizontal line in the chart shows the low point, 40, for the ratio since the early 1980s. The upper horizontal line show the upper end of the ratio at 80. There was one point in the early 1990s when the gold – silver ratio exceeded 80, but that has been rare.

When the price line (choppy black line) is heading up, it means the gold / silver ratio is widening and gold is relatively more expensive. When the price line moves down, silver is becoming more expensive versus gold. For the past six months or so, the ratio has been heading down from the high 60s to the current level of 48 or so. If history is a guide, silver is getting overbought versus gold.

About Fundmastery Blog

Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.